As payments go digital and new methods such as Account to Account (A2A), crypto and Buy Now Pay Later (BNPL) rocket in popularity, regulators are struggling to keep up with the pace of change.
The regulatory year in review
Here’s our overview of recent developments in key regulation areas – and predictions for 2022 – writes Ben Calver, Business Development Manager, W2.
BNPL: in the run-up to Christmas 2021, various press releases crowed the success of BNPL, noting that 51% of all spending on “Black Friday”, and, “Cyber Monday” had taken place using BNPL payments.
However, concerns are growing rapidly among regulators and legislators that BNPL is causing consumers to take on too much debt. For 2022, look for regulators in the UK, EU, US and elsewhere to start treating BNPL like personal loans, credit cards and other products. The implication is we’ll see much tighter control over BNPL spending for consumers, and more cross-checking of credit records.
Crypto: The big news in crypto this year has been trading non-fungible tokens (NFTs) using crypto. Because NFTs are traded on their own exchanges using crypto to fund the trades, they are seen as highly susceptible to those seeking to get round the growing Know Your Customer (KYC) rules surrounding crypto.
Payments Cards & Mobile has written this handy explainer on NFTs and fraud risk. Elsewhere, look for regulatory tightening in the US and EU on KYC relating to crypto. In the UK, the Financial Conduct Authority (FCA) has banned trading in so-called “privacy coins” – expect other jurisdictions to follow suit rapidly as crypto continues to go mainstream.
Gambling: Online gaming as an industry looks set to pass the $200 billion mark in value by 2023, according to Juniper Research. If that sounds like good news, then consider that payments fraud related to gambling is growing even faster than the market itself, up 30% in 2021, according to EMVCo.
In part, this is driven by gamblers’ desire to see immediate payouts from their winnings, a need that draws them to instant payments solutions and the perceived anonymity of crypto. The online sports betting market, in particular, is worth over $46bn a year according to Sticpay and is expanding at 10.1% annually world-wide.
On the one hand, legislative activity in the UK (Gambling Act 2005) and elsewhere has made internet betting easier; on the other, rising fraud has acted as a brake on many companies’ ambitions. Next year, expect regulators to demand better KYC and Anti-Money Laundering work from gambling sites.
Meanwhile, payments companies will continue to develop solutions that incorporate bank-level KYC into the onboarding and log-in processes for gaming sites, satisfying the needs of regulators while maintaining user convenience and rapid payouts.
FinTech/Payments: with fraud in the digital channel now estimated to account for up to 13% of all transaction attempts according to online security experts Vesta, it’s a stick-on that we’ll see further security protocols mandated by regulators around the world.
These could include a combination of biometric factors, passwords and One-Time passcodes sent over a second channel such as a mobile device. Elsewhere, we’ve already written about Europe’s introduction of a 6th AML directive, while the US looks set to introduce a raft of tough new anti-fraud measures by 2023.
Across the board, regulators are striving to keep pace with payments innovation, in particular when it comes to instant payments and account-to-account rails.
The challenge of securing user identity and differentiating real transactions from fraud in the instant payments space is one which is not going to go away any time soon, and it’s likely we’ll see regulators crack down hard in this area in the next 12-18 months.
For a conversation about how new regulations could affect your payments business, please get in touch with W2
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